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MarsC

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21/12/18

14:22

Post #: 36936027
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Originally posted by andy777 ↑

Originally posted by thunderhead1
Bennelong owns 20% of BWX, which lost nearly half its value today, so I wouldn't read too much into both their trades and/or their motives.

The anticipated economic slowdown, which is already manifesting itself in weaker house prices and car sales, is biting ARB's share price. It could very well go much lower from here as the cycle turns decisively.
Yep the great economic slowdown! Personally it seems as if there has just been a huge change in sentiment world wide and risks assets are falling and hence being sold at an increasing rate*. I have bought ARB fairly recently along with a number of higher growth businesses such as CAR, SEK and RWC. All continue to sink like a stone but I can't see the theoretical discount rate applied to these businesses changing much in the future. Sharply higher rates/an economic slowdown are starting to be priced into a number of the better quality businesses. No doubt I am too early but if the market falls another 10 or 20% I will look at remortgaging our house to provide more equity to invest into the market.

As for fund managers selling - ophir asset management made an interesting point in a recent update that in situations like this fund managers will sell the more liquid midcaps to cover redemptions and avoid selling keystone large cap holdings or illiquid small caps. No doubt there are plenty of redemptions to be covered right now.

* Of course eventually this will have an impact on the real economy and despite Powell basically stating that stock market movements won't impact fed rate rises, he may have cause to reverse this decision if the markets continue to fall.

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"... I can't see the theoretical discount rate applied to these businesses changing much in the future."

Well what do you consider a reasonable discount rate to be? Not so long ago, when some businesses were at a PE of 30, implying an earnings yield of a little over 3%, high grade corporate bonds were yielding over 4%.

Something like an ARB was yielding a dividend of about 1.5%. So where was the margin to low risk alternatives? We can say ARB was giving you 1.5% + the growth rate, sure. But apply any reasonable growth rate you care to, and see how far you have to travel into the future before you get a return that compares well with the low risk alternative (and "comapares well" does not mean matches the low risk alternative).

Try it on a spreadsheet and see how much of a time traveller you have to be. Now if that isn't speculation, what is?

ARB Price at posting: $15.02 Sentiment: Hold Disclosure: Held
6 Upvote

2 Great analysis

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